Number of the Week: Developing Economies Become More Resilient

83%: Percent of time emerging and developing economies spent in expansion in the 2000s.

For the first time, emerging and developing economies spent more time in expansion in the past decade than advanced nations.

Emerging and developing economies are proving more resilient to downturns, even as advanced economies are spending less time in expansions, the International Monetary Fund noted in their most recent Word Economic Outlook report. In the 1970s and 80s the developing world spent about 33% of their time in downturns, but by the 2000s it was in expansion 83% of the time. The opposite trend is apparent among advanced nations, which have spent more time in downturns in the past two decades.

There are multiple reasons for the increasing resilience of emerging and developing economies. For one, while they remain vulnerable to shocks from abroad, negative domestic events have become less frequent. Even as much of the advanced world suffered through banking crises during 2008-09, the developing world managed to avoid such severe shocks in their local industries.

Further help has come through improved structural frameworks and improved fiscal positions. Most emerging and development economies have external debt levels below 40% of gross domestic product — a key stability threshold cited by economists Ken Rogoff and Carmen Reinhart. Meanwhile, governments have moved to make foreign-exchange regimes more flexible and support increased openness to trade. Central banks also have adopted helpful policies, such as setting clear inflation targets.

The structural changes in place in many emerging and developing economies suggest that the gains aren’t just temporary. That doesn’t mean that they have decoupled from advanced economies. If another global recession takes hold, which the IMF warned was a possibility, emerging and developing nations won’t get through unscathed. But when external shocks hit, they are in a better position to recover.

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